Radiant looks to buy Max Healthcare stake

MUMBAI: Investor-cum-entrepreneur Abhay Soi-led Radiant Life Care is in preliminary discussions to buy a strategic stake in Max Healthcare (MHC) as Life Healthcare Group Holdings considers a sale of its stake in Analjit Singh’s hospital chain, several people with knowledge of the matter said.

The Johannesburg-based company, the second-largest private hospital owner in South Africa, is looking to exit its six-year-old investment in Max, considered a non-core bet away from its home market. The company is said to have roped in Barclays Plc to explore interest in the holding.

Life Healthcare and Max India each own 49.7% of Max Healthcare, a subsidiary of Max India. The promoters, Singh’s family, own 40.97% of the listed Max India, which also houses the Max Bupa healthcare insurance joint venture and Antara, a senior-living platform. Max Healthcare runs Max Hospitals, the country’s third-largest such chain with a capacity of 2,500 beds at 14 facilities.

Discussions are at an early stage and there is no guarantee they will lead to a deal, said the people cited above. “A formal sale process has been initiated as Life is keen to monetise its investment,” said an executive involved in talks. “Discussions and management meetings have taken place between both sides. But this will be a long-drawn process. Analjit Singh has to give his consent to any new partner.”

“This will become a competitive process as others would also jump in. The South Africans too would like to maximise their value on the investment, ” the executive added. Life Healthcare could seek up to $450-500 million for its stake, said one source.

The stake has also drawn initial interest from private equity firms such as TPG Capital, said the people cited above. This could not be independently verified.

Max and Soi declined to comment on what they said was market speculation. A Life Healthcare spokesperson was not available for comment. TPG didn’t respond to queries.

Soi, backed by private equity firm KKR, is positioning Radiant as a consolidator of healthcare assets in the country. The Wall Street fund acquired a 49% stake in Radiant for $200 million last July.

KKR is also an investor in Singh’s financial services company. “KKR already has a foot in the door with deep relationships with Singh,” said an executive. “They bought 10% in Max Financial in 2006, which is Singh’s listed life insurance company, and have had lending relationships from even before. That gives Radiant and KKR an extra edge over others.”

SEEKING TO CONTROL The stake that Radiant could pick up is not clear. Singh may divest his stake in parts, making Radiant the controlling shareholder over time. It wouldn’t want to be the junior partner, said a New Delhi-based lawyer aware of the dialogue.

“It’s equal partnership or a path to control--that’s what Radiant would negotiate for,” he said.

Radiant’s existing facilities include BLK Super Speciality Hospital in New Delhi and the Nanavati Super Speciality Hospital in Mumbai, both of which have been rebuilt and relaunched since being acquired. It is also looking to buy Seven Hills Hospitals in Mumbai from the bankruptcy courts and has been eyeing Subrata Roy’s Sahara Hospitals.

Max Hospitals’ FY17 revenue grew 17% to Rs 2,454 crore, according to its annual report. The group said that profit was hit by demonetisation and price cuts imposed by the regulator. The chain has a strong presence in north India.

“MHC needs to invest an additional Rs 700 crore over the next three years to take full control of its earlier purchased hospitals, namely Saket City Hospital (Gujarmal Modi trust), Crosslay (Ghaziabad, UP) and a land parcel in Saket,” said Rakesh Nayadu and Hitesh Gulati of Haitong International, a Hong Kong-based brokerage firm. “It also plans to invest Rs 400 crore to add 400 new beds at its existing hospitals over the next three years, all of which are likely to keep debt levels high… Max management has a track record of creating shareholder value.”

Life Healthcare’s move to exit Max comes as its shares have fallen 15% in Johannesburg in the past year, giving it a market value of about $3.1billion, according to Bloomberg. Moreover, India’s healthcare industry, especially the hospital chains, are under fire because of regulatory action.

The decision of the National Pharmaceutical Pricing Authority to slash prices of cardiac stents and knee implants by over 50% has hit the profitability of large hospital chains. With devices being a key source of revenue, they are looking at options to fill the gap.

Max Hospitals is also facing heat from the Delhi government, which forced the closure of its Shalimar Bagh hospital after a baby declared death was found to be alive. The hospital has since reopened and the group has challenged the order.

Life Healthcare acquired a 26% stake in Max Healthcare in 2012 for Rs 516 crore, raising it two years later to 46% by investing an additional Rs766 crore at Rs 67 per share.

The lack of investment by government has provided an opportunity to expand in India for the $60 billion healthcare industry. Rating agency Crisil predicts that hospital chains will grow at 20-25% by 2020.

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